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PPG Q1: 'Modest' Sales, 'Subdued' Times

Friday, April 17, 2015

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PITTSBURGH—Flattened sales growth and an unfavorable currency translation hit hard, but earnings climbed for PPG Industries in the first quarter of 2015, the company reported Thursday (April 16).

The world's largest paint and coatings manufacturer reported a 1 percent year-over-year increase in first-quarter net sales from continuing operations, to $3.7 billion. While reporting record first-quarter earnings in both coatings segments, however, PPG also announced an internal restructuring program.

Overall, protective and marine coatings declined slightly in the first quarter, while the aerospace and automotive refinish segment continued its growth of recent quarters.

Photos: PPG Industries

The $2.3 billion Comex acquisition, completed in November 2014, was the second-largest in PPG history and added a leading architectural coatings business to the company's portfolio.

The architectural portfolio struggled on several continents but got a boost from a variety of acquisitions, especially Comex. Industrial coatings declined due to unfavorable currency translation, despite an increase in segment net sales.

The Big Picture

First-quarter 2015 reported net income from continuing operations was $321 million, or $2.33 per diluted share, compared with $277 million and $1.97, respectively, in the first quarter of 2014, PPG said.

Adjusted net income was $327 million, or $2.37 per diluted share ($279 million and $1.98 in 2014).

Net sales in local currencies grew 8 percent year-over-year, almost entirely from acquisition-related sales; unfavorable currency translation bit into year-over-year net sales by 7 percent, or about $260 million.

“We continued to deliver strong financial results, including 20 percent adjusted earnings-per-share growth,” said Charles E. Bunch, PPG chairman and chief executive officer.

Records and 'Right-Sizing'

“From an economic perspective, overall global activity was subdued in the quarter, as reflected by our modest sales-volume growth," Bunch said.



PPG gave investors a snapshot (left) of its business in a 2014 presentation. Chairman and CEO Charles E. Bunch said the company was "well positioned" for improvement.

"Additionally, currency translation unfavorably impacted our sales and lowered our pretax earnings by nearly $30 million.

"However," he added, "both of our coatings segments delivered all-time-record first quarter earnings, and the glass segment delivered its highest first-quarter earnings in more than 10 years."

Nevertheless, the company announced a business-restructuring program "that includes actions necessary to achieve cost synergies related to recent acquisitions."

PPG said it planned to "right-size employee headcount and production capacity in certain businesses and regions"; it did not elaborate.

The restructuring will save PPG $15 million to $20 million in 2015 and $100 million to $105 million a year by 2017, the company said. PPG will post a pretax restructuring charge of $135 million to $140 million in the second quarter of this year.


Aggregate sales volume in protective and marine coatings declined, including lower demand in the Americas.

First-quarter segment results follow.

Performance Coatings

Segment net sales for the quarter were $2.06 billion, up about 2 percent over the prior-year period. Acquisitions, including Comex, added about 12 percent, or $225 million, to net sales. But unfavorable currency translation reduced net sales by about 8 percent, or $160 million.

Segment volumes declined slightly.

Volume growth continued in aerospace and automotive refinish, reflecting higher end-market demand. Aggregate protective and marine coatings volumes declined, however, including lower demand in North and South America.

Architectural coatings – EMEA (Europe, Middle East and Africa) sales volumes were mixed throughout the region but negative compared with strong prior-year growth stemming from good weather that gave an early start to the painting season.


Architectural coatings sales volumes in North America and EMEA were mixed.

Architectural coatings volumes in the U.S. and Canada were mixed. Store and dealer sales grew by mid-single-digit percentages but were offset by lower volumes stemming from new products supplied to major customers in the prior-year period.

Segment income was up 6 percent, or $14 million, to $262 million, but unfavorable currency translation trimmed $15 million.

Industrial Coatings

Segment net sales for the quarter were down 2 percent year-over-year, to $1.34 billion.

Sales volume growth of 5 percent was more than offset by unfavorable currency translation of about $90 million, or 7 percent.

Automotive original equipment manufacturer (OEM) coatings delivered higher sales volumes in all regions, growing by high-single-digit percentages, which exceeded the global industry growth rate of about 2 percent. Volumes in the industrial coatings and specialty coatings and materials businesses were up slightly, but they varied by region and end-use market.


Already performing above industry-wide rates, PPG's OEM business has just completed the acquisition of automotive specialty materials maker REVOCOAT.

Packaging coatings sales volumes grew by mid-single-digit percentages. Total segment income for the quarter was $244 million—up $13 million, or 6 percent, year-over-year. Higher volumes and manufacturing cost improvements were partly offset by $10 million of unfavorable foreign currency translation.


Segment net sales were $267 million for the quarter, inching up $1 million year-over-year. Flat glass sales volumes grew modestly; lower fiber glass volumes in the U.S. were partly offset by European growth.

Outlook: 'Well Positioned'

Bunch predicted improvement ahead, driven by aggressive internal cost management and external improvement in economic conditions.

“Looking ahead, we anticipate stronger global economic growth in the coming quarters, including a resumption of growth in Europe and a return to a higher growth rate in the U.S.,” Bunch said.

“We remain well-positioned to leverage this growth into strong earnings contributions, given our lower cost base stemming from our continued cost management actions."


Tagged categories: Architectural coatings; Asia Pacific; Automotive coatings; Business operations; Coating Materials; Earnings reports; EMEA (Europe, Middle East and Africa); Latin America; Marine Coatings; North America; OEM (Original Equipment Manufacturers); Paint and Coating Sales; PPG; Protective Coatings

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